AMALGAMATION WITH MAGICMED INDUSTRIES INC

12 Months Ended

Dec. 31, 2022

Business Combination and Asset Acquisition [Abstract]

AMALGAMATION WITH MAGICMED INDUSTRIES INC

NOTE 3. AMALGAMATION WITH MAGICMED INDUSTRIES INC.

On May 24, 2021, the Company entered into an Amalgamation Agreement (the “Amalgamation Agreement”) with 1306432 B.C. Ltd., a corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of the Company (“HoldCo”), 1306436 B.C. Ltd., a corporation existing under the laws of the Province of British Columbia and a wholly-owned subsidiary of HoldCo (“Purchaser”), and MagicMed Industries Inc., a corporation existing under the laws of the Province of British Columbia (“MagicMed”), pursuant to which, among other things, the Company, indirectly through Purchaser, acquired all of the outstanding securities of MagicMed in exchange for securities of the Company by way of an amalgamation under the British Columbia Business Corporations Act, upon the terms and conditions set forth in the Amalgamation Agreement, such that, upon completion of the Amalgamation (as defined herein), the amalgamated corporation (“Amalco”) will be an indirect wholly-owned subsidiary of the Company. The Amalgamation was completed on September 16, 2021.

At the effective time of the Amalgamation (the “Effective Time”), holders of outstanding common shares of MagicMed (the “MagicMed Shares”) received such number of shares of common stock of the Company (“Company Shares”) representing, together with the Company Shares issuable upon exercise of the Warrants and the Converted Options (each as defined herein), approximately 36.6% of the issued and outstanding Company Shares (on a fully diluted basis). The MagicMed Shares were initially converted into Amalco Redeemable Preferred Shares (as defined in the Amalgamation Agreement), which immediately following the Amalgamation were redeemed for 0.000001 of a Company Share. Following such redemption, the shareholders of MagicMed received additional Company Shares equal to the product of the Exchange Ratio (as defined in the Amalgamation Agreement) multiplied by the number of MagicMed Shares held by each such shareholder. Additionally, following the Effective Time (i) each outstanding MagicMed stock option was converted into and became an option to purchase (the “Converted Options”) the number of Company Shares equal to the Exchange Ratio multiplied by the number of MagicMed Shares subject to such MagicMed stock option, and (ii) each holder of an outstanding MagicMed warrant (including Company Broker Warrants (as defined in the Amalgamation Agreement), the “Warrants”) received upon exercise of such Warrant that number of Company Shares which the holder would have been entitled to receive as a result of the Amalgamation if, immediately prior to the date of the Amalgamation (the “Effective Date”), such holder had been the registered holder of the number of MagicMed Shares to which such holder would have been entitled if such holder had exercised such holder’s Warrants immediately prior to the Effective Time (the foregoing collectively, the “Amalgamation”). In aggregate, holders of MagicMed Shares received 199,025 Company Shares representing approximately 31.7% of the Company Shares following the consummation of the Amalgamation. The maximum number of Company Shares to be issued by the Company as in respect of the Warrants and Converted Options shall not exceed 148,083 Company Shares.

The aggregate number of Company Shares that the Company issued in connection with the Amalgamation (collectively, the “Share Consideration”) was in excess of 20% of the Company’s pre-transaction outstanding Company Shares. Accordingly, the Company sought and received stockholder approval of the issuance of the Share Consideration in the Amalgamation in accordance with the Nasdaq Listing Rules.

Pursuant to the terms of the Amalgamation Agreement, the Company appointed, effective as of the Effective Time two individuals selected by MagicMed to the Company Board of Directors, Dr. Joseph Tucker and Dr. Brad Thompson.

The Amalgamation Agreement contained representations and warranties, closing deliveries and indemnification provisions customary for a transaction of this nature. The closing of the Amalgamation was conditioned upon, among other things, (i) the Share Consideration being approved for listing on Nasdaq, (ii) the effectiveness of a Registration Statement on Form S-4 registering the Share Consideration (the “S-4 Registration Statement”) and (iii) the approval (a) of the MagicMed stockholders of the Amalgamation and (b) of the Company’s stockholders of each of the Amalgamation and the issuance of the Share Consideration in the Amalgamation. The closing of the Amalgamation occurred on September 16, 2021.

MagicMed Industries develops and commercializes psychedelic-derived pharmaceutical candidates. MagicMed’s psychedelic derivatives library, the Psybrary™, is an essential building block from which industry can develop new patented products. The initial focus of the Psybrary™ is on psilocybin and DMT derivatives, and it is then expected to be expanded to other psychedelics.

On September 16, 2021, the Company completed the Acquisition. In exchange for a total purchase price valued at $39,042,282 the Company acquired 37,463,673 shares of Common Stock from MagicMed, which represents 100% of the outstanding and issued shares of Common Stock of MagicMed, for equity consideration on the date of closing valued at $27,067,310. The Purchaser also agreed that it would issue Company Shares in lieu of shares of MagicMed Shares for any warrants to purchase MagicMed Shares that were exercised, with the maximum number of Company Shares issuable pursuant to such warrant exercises being 118,274. The fair value of the warrants on the closing date of the Amalgamation was $10,724,578. Additionally, the Purchaser agreed that it would issue issued Company Shares in lieu of shares of MagicMed Shares for any options to purchase MagicMed Shares that were exercised, with the maximum number of Company Shares issuable pursuant to such option exercises being 19,477. The fair value of the options on the closing date of the Amalgamation was $1,535,790, with $1,250,394 included in the purchase price and $285,396 to be recognized as expense in the post combination period.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Aggregate goodwill of $9,834,855 was recorded in relation to the Acquisition, with $9,061,927 of this amount being related to deferred tax liabilities arising from the Company’s purchase of the MagicMed Shares and $772,928 relating to the residual intangible asset that generates earnings in excess of a normal return on all other tangible and intangible assets.

The following table represents the purchase price:

Stock (199,025 common shares issued)	$	27,067,310
Fair value of warrants		10,724,578
Fair value of options		1,250,394
Total Purchase Price	$	39,042,282

The Acquisition is being accounted for as a business combination in accordance with ASC 805.

The following table summarizes the purchase price allocations relating to the Acquisition:

Description	Fair Value
Assets acquired:
Cash	$	3,055,328
Prepaid expenses and other current assets		471,202
Government remittances recoverable		25,606
Property and equipment		118,935
Right-of-use lease assets		201,653
Other assets		10,155
In process research and development		18,900,000
Psybrary and patent applications		16,600,000
Goodwill		9,834,855
Total assets acquired	$	49,217,734
Liabilities assumed:
Accounts payable	$	828,865
Accrued expenses and other liabilities		83,007
Right-of-use lease liabilities		201,653
Deferred tax liabilities		9,061,927
Total liabilities assumed		10,175,452
Estimated fair value of net assets acquired attributable to the Company	$	39,042,282

The goodwill represents the excess fair value after the allocation to the identifiable net assets, with $9,061,927 being specifically attributable to the deferred tax liabilities incurred and $777,928 relating to the residual intangible asset that generates earnings in excess of a normal return on all other tangible and intangible assets. The calculated goodwill is not deductible for tax purposes.

ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain adjustments to the assessed fair values of the assets and liabilities made subsequent to the acquisition date, but within the measurement period, which is up to one year, are recorded as adjustments to goodwill. Any adjustments subsequent to the measurement period are recorded in income.

During the fourth quarter of 2021, the Company finalized the opening balance sheet and valuations for the assets acquired and liabilities assumed related to the acquisition of MagicMed and adjusted provisional amounts as follows:

● The Company recorded a $16.6 million indefinite lived Psybrary™ and Patent Applications asset with a corresponding decrease to IPR&D;

● The Company further decreased the IPR&D asset by $0.7 million with a corresponding increase to Goodwill; and,

● The Company recorded a $0.2 million right of use asset, with offsetting right of use operating lease liability related to identified leases in accordance with ASC 842 – Leases.

Total acquisition-related costs for the Acquisition incurred by the Company during the year ended December 31, 2021 was approximately $650,000 and is included in general and administrative expenses in the consolidated statement of operations.

Historical and Proforma Financial Information

The amounts of MagicMed’s revenues and net loss included in the Company’s consolidated statements of operations and comprehensive loss for the period from the acquisition date to December 31, 2021 were $— and $33,556,532 respectively. The following unaudited proforma financial information presents the consolidated results of operations of the Company and MagicMed for the year ended December 31, 2021, as if the acquisition had occurred as of the beginning of the first period presented instead of on September 16, 2021. The proforma information does not necessarily reflect the results of operations that would have occurred had the entities been a single company during those periods.

	For the year ended December 31,
	2021
Revenues	$	—
Net loss	$	(54,127,203	)